Australian Credit Stationers: Collecting Awkward Accounts

Disclaimer: The content of these articles is to be used as a general guide only. Professional advice should be sought before taking any action relating to the points discussed in these articles.

COLLECTING AWKWARD ACCOUNTS

A customer from South Australia once asked us if we have anything for the awkward accounts. We have never referred to accounts like this but it certainly is awkward when you have asked nicely for the money, sometimes as often as three times and you have not been paid.

At this stage, your debtor needs greater motivation than the peace of mind one feels in paying one's debts. It is now necessary to give the debtor a better reason to pay than before. It can be the same message, put forward more strongly or a new message which can be subtle or obvious.
Usually, this point is reached when the account is 60 days past the due date for payment, but this will depend to a large extent on your terms of payment and the collection plan being followed.
Also, you need to consider what the debtor is costing you. There are collection costs, both costs to date and potential costs as well as lost interest received or more interest due on your overdraft. Firstly, before you proceed any further you need to make quite sure it is nobody's fault in your organisation that is causing a delay in payment.
Secondly, you need to consider if this customer is still of value to your firm. Do you want the customer to order again? Mostly, the answer at this stage is yes.
For an account of this age, you are not looking at taking legal action. You need to give the customer a stronger reason to pay than before, either by speaking more firmly, or perhaps looking at the account in a more innovative way.
There are many tools for dealing with awkward accounts. For cost effectiveness each one in the right circumstances might be the best one to use.
Firstly, collection stickers especially when attached to a statement of account are effective because they are noticed and will make your account stand out. If you have used a sticker earlier in the collection process it is important to use a more strongly worded sticker this time. You can use a collection sticker to ask why you haven't been paid, ask for your money in a humorous way, ask in a strong way without making a specific threat or threaten to withdraw credit or discontinue further supply until payment is made.
Collection cards are effective with awkward accounts because they are used so rarely. Hence, you can catch your debtor by surprise. The main advantage of collection cards is that your debtor is likely to open the envelope since it looks very much like a greeting card. It is essential you send the collection card in a plain envelope with no return address visible. Your address should be written on the card.
Collection letters are a commonly used tool but even the best and most innovative collection letters will be useless, unless you can convince your debtor to open the envelope. If you do send a letter, make sure your opening paragraph is powerful. Sarcasm and humour can be effective.
Probably, the most common tool for collecting awkward accounts is the telephone. This is especially effective when your debtor has not responded to earlier reminders. Prepare what you wish to say and document what your debtor says as you may need to make another call later on. The main disadvantage with the telephone is the cost, especially the cost of time.
The most effective method for collecting awkward accounts is to call on the debtor in person since you are forcing your debtor to confront you.
This is by far the most expensive form of account collection so this method is generally used only when the account is large. If you do this, make sure you see someone who has the authority to pay your account. If your sales staff are trained in collecting overdue accounts then they are ideal people to collect your money since having sold the customer your goods or services they can now sell the customer the idea of paying for them.
Collecting awkward accounts is one of the main challenges in account collection. To be successful at this, you need to be innovative, friendly and frequent.